I’ve known people who have become incredibly wealthy through investing in rental properties.  And I’ve also seen those that can barely make break even, yet alone afford to keep their properties up to par.

If you think about it, investing in rental properties, especially residential, really seems to be a great way to build wealth through equity.  Even if you don’t make a monthly profit, your tenants pay you enough to at least make your mortgage payment plus enough extra to pay the taxes, insurance, and keep the place maintained and in good condition.

The profit simply comes on the backend when you go to sell the rental property.  If all goes well, you’ll be able to cash out all of the equity the renters have footed the bill for along with appreciation the property has built over the years.  It’s really that easy!

Or not…

Sure, in the perfect scenario, making big profits through rentals is nothing more than an automated machine.  But unfortunately, the real world exists and things are never quite as simple as they should be.

Don’t be too discouraged, but in the real world, finding a good property, owning, and operating rental properties successfully is a lot of hard work.  Renters don’t always pay on time – you’ve got to track down the money.  Even with rock solid lease contracts, it’s still hard to keep properties occupied some times at all and other times by worthy respectable renters.

What happens to your finances if a renter can’t pay you for a month or two?  What if you can’t find someone to rent for a four or five month period of time?  If you’re leveraged to the max, chances are any one minor hiccup can be enough to put you under.

And are you ready for the phone call in the middle of the night with a frantic renter on the line that needs a light bulb changed immediately?  I know that’s extreme, but remember any little thing from a leaky faucet to a toilet that won’t flush can quickly end up being your problem to fix.  It’s all just part of the hard work of investing in rental properties.

Again, I’m not trying to discourage investing in rentals at all, but rather, to encourage looking at all the aspects of the investment first.

A Few Suggestions for Success with Rentals:

• Keep a manageable portfolio of properties… Don’t overwhelm yourself.
• Hire a property manager to take care of the details if your budget allows.
• Consider only investing in brand new or low maintenance properties.
• Meticulously screen renters looking for dependable, clean, and long term tenants.
• Don’t over leverage yourself… Remember, one minor hiccup and your whole portfolio could totally implode.
• Have a plan and run your rental investment like a business.
• Plan ahead and save up for expected maintenance.
• Keep ample funding set aside for unplanned maintenance.
• Develop your exit strategy right from the beginning – Rental real estate fluctuates just like other real estate.